High-speed railway sparks concern on costs
China actively sells its highspeed railway around the world, but the government’s passion in promoting it is causing a heated debate at home on the rationale behind the costly project.
Zhao Jian, a professor of economics at Beijing Jiaotong University, and Gao Bai, a professor of transportation studies at Chengdu-based Southwest Jiaotong University, published articles holding opposing views on China’s high-speed railway project in the Shanghai-based Oriental Morning News during the past two weeks. Their views are representative of each side.
Zhao wrote: “Whether the high-speed railway projects can realize a balance between its profit and loss, and if the projects can improve the allocation efficiency of transportation resources, and optimize the overall transportation structures are two important criteria judging the success of the projects.”
According to Zhao’s calculations, railway projects have failed both of the two criteria so far in China. By the end of last year, statistics from China Railway Corp, which replaced the former Railway Ministry last March, the corporation’s overall debt was 3.2 trillion yuan ($525 billion). At least 2 trillion yuan of that amount went for the construction of high-speed railways. Each year the corporation will pay at least 100 billion yuan interest on its debt.
So far, the overall revenue from the corporation’s highspeed railway business each year has not been enough to pay the interest on the debt incurred in building it, even before its operating costs are included. The corporation has to borrow new debt to repay the old debt. “If the government does not subsidize the corporation, the corporation’s debt crisis will break out in two years,” Zhao predicted.
High-speed railway is a capital-intensive and huge-volume means of transportation. The cost of building every kilometer of a high-speed railway is two to three times that of a conventional railway, and the highspeed railway’s technology and standards are incompatible to plain railways. “These technological and economic properties of high-speed railway mean the high-speed railway projects cannot make ends meet without the support of a huge passenger flow,” Zhao wrote.
Only the Beijing-Shanghai high-speed railway’s deficit has been kept within a safe range, losing about 3 billion yuan each year and carrying 100 million passengers every year, because its asset-liability ratio, 30 percent, is much lower than the other high-speed railways in China, thanks to the government’s huge subsidy to the first milestone line. This line connects Beijing, Tianjin, Shandong, Jiangsu, Shanghai and Zhejiang, all major players on China’s economic map, and home to about 300 million people.
The fast development of high- speed railways has squeezed the amount of railway freight transportation. Railway’s share in the landfreight transportation market shrank to 22 percent last year from 54 percent in 1998, while the road transportation’s proportion rose to 51 percent from 24 percent, consuming huge amounts of fossil fuels, polluting the environment and raising the transportation costs by a large margin. In the United States, railways’ share of freight stays at about 40 percent, always markedly higher than that of the road.
“China should improve its current railway net to meet the demands of its fast-growing freight transportation, and further improve the service level for the plain passenger railway trains by ending the corporation’s monopoly and promoting market competition,” Zhao wrote.
He said China should draw lessons from Japan, France, Germany and Italy, all big players in the global high-speed railway market. “Exporting technology, contracting projects and exporting the highspeed railway train units are more reliable and profitable businesses, minimizing the risks,” Zhao wrote.
Gao Bai’s article was published one week later, refuting Zhao’s points that the highspeed railway should not be judged only by economic balances on paper.
“The high-speed railway is different from general products and services, because it promotes regional economic development, extends the industrial chains, and consolidates the state governance ability,” Gao wrote in his article. “The high-speed railway can help China upgrade its export structure, promote the regional integration of the Eurasian continent, and raise China’s global influence.”
Were it not for the government’s subsidy, China could not build its high-speed railway so fast. The government regards the state-run railway system as an important public service, and that’s why the high-speed railway continues growing fast, despite heavy debts.
“The high-speed railway has strong positive externalities, because it promotes regional integration, and increases the liquidity and exchanges of production factors,” Gao observed in his article. “The export of high-speed railway projects can also help China find market for its overcapacity industry and capitals, and diversify its foreign exchange reserves.”
He urged the Chinese government and the China Railway Corp to pay special attention to protect the intellectual property rights of China’s high-speed railway in overseas market, and diversify financing channels to keep the financial risks under control.
High-speed trains in Shanghai Hongqiao Railway Station, one of the largest in China. The rush to build high-speed rail in China has created large debt payments.